Analyzing the Operations Decisions Term Paper

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Operations Decisions

Outline a plan that will assess the effectiveness of the market structure for the company's operations. Note: In Assignment 1, the assumption was that the market structure [or selling environment] was perfectly competitive and that the equilibrium price was to be determined by setting QD equal to QS. You are now aware of recent changes in the selling environment that suggest an imperfectly competitive market where your firm now has substantial market power in setting its own "optimal" price

In the recent decade or two, there has been an increase and proliferation in microwavable food products in the consumer market. In the present day society, with both parents working late and with an increase in the household income generated, these sort of products are not just convenient for the family, but actually deemed a delight in gourmet food, devoid of having to go to a restaurant. In addition, these food products are beneficial to the entire household. For instance, children can have them after school, parents can carry them as lunches to work and they can also eat as dinner in the evening. Microwavable food products have come to be a household name. The prevalence of microwaves has made these products all the more popular amongst the consumers.

By setting QS equal to QD

QS = -7909.89 + 79.0989P

P = (7909.89 / 79.0989) -- Q/79.0989

QD = 57,675-100P

P= 57,675/100 -- Q/100

P = 576.75 -- Q/100

In this case,

MR = P = 576.75-0.10 Q

But P = (7909.89 / 79.0989) -- Q/79.0989

Therefore,

576.75-0.10 Q = (7909.89 / 79.0989) -- Q/79.0989

576.75 -- (7909.89 / 79.0989) = 0.10Q - Q/79.0989

476.75 = 0.0873576 Q

Q = 5,457.45

P = 31.005

Therefore, the equilibrium price is 31.005 cents and the equilibrium quantity is 5,457.45 units.

Given that business operations have changed from the market structure specified in the original scenario in Assignment 1, determine two (2) likely factors that might have caused the change. Predict the primary manner in which this change would likely impact business operations in the new market environment

The market can grow into one that is more concentrated, and taking into account the prevailing data, there can be fewer companies in the industry. Owing to having fewer corporations in the industry, this implies that the price of the product can be controlled. For this reason, the initial monopolistic competition in the market structure ends up becoming one with oligopolistic competition. In this market structure, there are minimal numbers of companies, with every one of them having to monitor and constantly check the competition in terms of price, level of production or any new products unveiled in the market. Therefore, if all the companies in a monopolistic market begin altering their product prices and start competing, this would bring about a decline in their profits. This can also be perceived from market structures that are monopolistic to ones that are oligopolistic and produce the same product. However, companies in the monopolistic market structure have to go on being inventive by producing dissimilar and diverse products, in addition to being a trailblazer, so the consumer base is maintained. A number of reasons can cause the change in demand. For instance, a change in the product price set by the competitor, consumer income or price of the products or materials being used. By shifting market structures, the company has to ascertain who its competitors are and the market in which they are operating in order to be entirely profitable.

Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable food company given the cost functions below. Suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short-run and the long-run

In the short-run, with respect to a monopolistic market structure, the marginal cost is lower than price. The inference of this is that profit may not be generated in the short run. Having an entry of new companies in the industry, the supply increase can take place, which can instigate the equilibrium price to decline. As a result of this decline, it is mirrored in the demand curving. On the other hand, in the monopolistic market structure, there is free entry and exit in the industry, changeability in price and demand for the firms that have been in the market for a lengthy time period.

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On the contrary, for the long run, marginal cost is always equal to marginal revenue. In the long run, profits are zero and in the end, the consumers are swayed somewhere else. So as to be profitable, it is imperative for the price to be higher than the average cost price. In the short-run, the price ought to meet the average variable costs and in the long run, the total costs have to be met in the long-run so as to sustain its operations.

TC = 160,000,000 + 100Q + 0.0063212 Q2

VC = 100Q + 0.0063212 Q2

MC = 100 + 0.0126424 Q

Average Total Cost (ATC) = 160,000,000/Q -115.56Q +0.01111Q

160,000,000/Q -- 115.56 +0.01111Q = -115.56 +0.02222Q

160,000,000 = 0.0126424Q2

Q2 = 160,000,000 / 0.0126424

Q2 = 1,265,582,484

Q = 35,575

Value of Average Total Costs (ATC)

160,000,000/Q -115.56Q +0.01111Q

Q = 35,575

160,000,000/35,575 -115.56 +0.01111 (35,575)

= 4,77.22

Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response. (Hint: Your firm's price must cover average variable costs in the short run and average total costs in the long run to continue operations.)

At times, a company can be forced to discontinue its operations. A number of these reasons can include inability to compete with rival companies in terms of prices and innovation. Companies can also be inclined to discontinue operations, owing to insufficient funds. There is also the prospect of supplies and raw materials employed being no longer obtainable. For the company to remain profitable and viable, they ought to make sure they are aware of the products retailed by competitors and the prices set. This is imperative in order to continue being profitable, for the reason that the consumers may lose the appeal. One other element is that it is significant to make certain that the business has several suppliers, just in case one becomes bankrupt or ceases to be in operation. Lastly, one significant element is that the company ought to have sufficient capital (Keat et al., 2013).

Suggest one (1) pricing policy that will enable your low-calorie, frozen microwavable food company to maximize profits. Provide a rationale for your suggestion

A suggested pricing policy that will enable the company to maximize profits is marginal cost pricing. Business wise, the price that is set for a product is equivalent to the additional cost of producing an additional unit of output. Taking this pricing policy into account, a company charges, for every unit of product sold, solely the addition to the total cost that emanates from materials and direct labor. More often than not, companies set product prices that are just about equivalent to marginal cost, all through time-periods and phases of poor retail sales. In order to remain profitable, the company has to set a price that is higher than its average total cost at the maximum level of output. The price set by the company ought to able to incorporate the average cost in the short-term as well as be able to cover the average total cost in the long-term (Uslay, 2012).

P = 576.75 -- Q/100

Total Revenue (TR) = (P x Q)

TR = 576.75Q -- Q2/100

Marginal Revenue (MR) = (dTR/dQ)

MR = 576.75 -2Q/100

In order for there to be profit maximization, Marginal Revenue = Marginal Cost, MC=MR

576.75-2Q/100 = 100 + 0.0126424 Q

476.75 = 2Q/100 + 0.0126424 Q

476.75 = 0.0326424Q

Q = 14,605.24

The low calorie frozen food has demand that is inelastic. This can be perceived from the fact that if the price were to be increased, the quantity would decline.

Outline a plan, based on the information provided in the scenario, which the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short-term and long-term, and the fundamental manner in which each factor influences managerial decisions

Being in a monopolistic market structure, a company operates with high profits, which attracts the entry of new companies into the industry. Therefore, for the company to sustain its position, it is imperative for it to have investment in marketing.....

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